Bank cuts rates again to soften virus blow

South African Reserve Bank. Picture: MARTIN RHODES
South African Reserve Bank. Picture: MARTIN RHODES

The Reserve Bank cut its key interest rate for the fifth time this year on Thursday to breathe life into the coronavirus-stricken economy.

Along with other central banks around the world, which have aggressively lowered borrowing costs to soften the economic blow from Covid-19, the bank cut its repurchase, or “repo”, rate by 0.25 percentage points to a record low of 3.5%.

Already this year, the bank had cut the rate by a total 2.75 percentage points to provide relief to indebted consumers.

President Cyril Ramaphosa imposed a hard lockdown on March 27, but began loosening some of the restrictions in June to allow for economic activity to resume.

But the country’s economy was already in tatters before the onset of the pandemic, with credit ratings agencies downgrading SA’s sovereign debt.

Reserve Bank governor Lesetja Kganyago warned that even as the lockdown was relaxed in coming months, investment, exports and imports were expected to decline sharply across the year as a whole.

Job losses and unemployment, already at record highs of above 30%, are also expected to climb further.

The central bank also downgraded its growth estimate for the second quarter and said it expected GDP to contract by 7.3% in 2020, instead of the 7% forecast in May.

“The deepest contractions are expected in the second quarter of 2020, with gradual recoveries in the third and fourth quarters of the year,” Kganyago said.

The rate decision comes at a time when consumer inflation is at a 15-year low at 2.1%.

Since January, the rand has depreciated by 15.2% against the dollar, the governor said.

SA is the country in Africa that has been worst hit by the coronavirus pandemic and, with more than 400,000 infections so far, ranks among the top five in the world in terms of confirmed cases. — AFP

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